Cattle on feed numbers drop 8 percent

USDA's delayed cattle on feed report confirms industry analysts' estimates of tightening cattle supplies. The number of cattle on feed in October is at its lowest level for Octoberr since 1998. Low cattle supplies are driving high fed cattle and beef prices, which could hit a breaking point with consumers.

USDA’s delayed October cattle on feed report showing an 8 percent decline in cattle in large feedlots, didn’t surprise cattle industry analysts when it was released last week.

Drought, high feed costs, and declining imports of Mexican cattle have prompted lower year-over-year feedlot numbers since September of 2012. Throw in recent signs of herd rebuilding, and the decline in cattle in feedlots with 1,000 head capacity or more was not unexpected.

The number of cattle on feed in October, at 10.144 million, is at its lowest level for October since 1998, and is the third lowest monthly level in 2013.

The number of cattle placed on feed during September, at just over 2 million, was no surprise either. Those placements are the second-lowest September number since 1996 and just 1 percent above September 2012, which the lowest September number since USDA’s series began in 1996.

Cattle on feed and placements came in on mark with industry estimates, said Wilson Gray, livestock economist with the University of Idaho.

Cattle on feed last October was higher and placements were lower due to drought and heavier culling earlier in the year, he said.

The report was no shock to analysts or the market, with fed cattle markets closing negative on Friday and cash prices holding steady at $132 to $133 per hundredweight, said Tom Leffler, owner of Leffler Commodities, an Augusta, Kan., brokerage and ag marketing analysis firm.

Cattle availability has been trending lower, especially since the drought, and the September cattle on feed number, at about 9.9 million, was even lower than October’s, he said.

Tight placements, tight feedlot numbers and tight fed cattle are going to continue, contributing to even more overcapacity in feedlots and packing plants, he said.

"That’s not good for either," he said.

Fed cattle and beef prices are responding to the tight market, but the real problem is when beef prices get too high, consumers stop buying, and that trickles back down the chain. With record-high fed cattle prices, packers already need $211 per hundredweight on choice boxed beef, and that price is running $205, Leffler said.

"We’re going to have to find a happy medium on how high we can push prices and what’s the breaking point of consumers," he said.

Beef is the highest-priced protein in the market, and consumers will switch to poultry and pork if the price gets too high. A key factor in demand is going to be the economy, which is only showing a slow recovery and doesn’t seem healthy enough to sustain these high beef prices, he said.

Analysts Steve Meyer and Len Steiner in their Daily Livestock Report on Nov.1 said cattle on feed numbers continue to imply that cattle slaughter in the first quarter of 2014 will decline significantly compared with a year earlier.

That decline will be driven by fewer cattle on feed and fewer cull cows going to market. Through the end of the year, slaughter levels will drift lower, but the bulk of the decline is likely to hit in early 2014, they reported.

Tight supplies imply that cattle and beef prices have no reason to go lower, which was the mindset when high prices favored the industry in late 2012 and early 2013. But prices soon began declining and didn’t started to recover until the summer, Leffler said.

Beef production is coming down and it will be interesting to see if prices can be maintained or even increased, said John Nalivka, owner of Sterling Marketing, a Vale, Ore., consulting firm for the red meat industry.

Pork production is expected to increase 3 percent next year, but whether that increase would limit beef demand is debatable. It could go the other way, with beef prices supporting pork prices, he said.

In the short term, it’s hard to get a handle on feeder cattle supplies because USDA canceled the July bi-annual cattle report that tallied those numbers. The industry will have to wait until January for USDA’s annual cattle inventory report to know what’s ahead, Gray said.